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Neostem Inc. Reports Operating Results (10-Q/A)

September 24, 2009 | About:
10qk

10qk

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Neostem Inc. (NBS) filed Amended Quarterly Report for the period ended 2009-06-30.

alt="Chart,NeoStem Inc. is an innovative publicly traded company positioned to become a leader in the adult stem cell field and to capitalize on the increasing importance adult stem cells are expected to play in the future of regenerative medicine. Neostem Inc. has a market cap of $17.1 million; its shares were traded at around $2.001 with and P/S ratio of 213.6.

Highlight of Business Operations:

In February and March 2009, in order to move forward certain research and development activities, strategic relationships in various clinical and therapeutic areas as well as to support activities related to the Merger Agreement and Share Exchange Agreement, and other ongoing obligations of the Company, the Company issued promissory notes (the “RimAsia Notes”) totaling $1,150,000 to RimAsia, which notes bore interest at a rate equal to 10% per annum and mature on October 31, 2009 except that they matured earlier in the case of an equity financing by the Company that raised in excess of $10,000,000. The RimAsia Notes plus accrued interest were paid in April 2009 (as described below). Additionally, as of July 1, 2009, NeoStem, CBH, CBC and RimAsia, which is a significant investor in the Company and CBH, entered into a Funding Agreement pursuant to which it was agreed that RimAsia shall supply additional funding to both NeoStem and CBH in an amount up to $1.6 million (including approximately $1 million advanced to date), which amount shall be deemed settled upon its receipt of the increased amount of NeoStem securities to be received by RimAsia as part of the Merger consideration as agreed in the July amendment to the Merger Agreement. If less than $1.6 million has been advanced at that time, the difference shall be paid to NeoStem at the closing of the Merger. In the event the Merger has not received shareholder approval by October 31, 2009, NeoStem is required to repay RimAsia all payments incurred or made by RimAsia on behalf of NeoStem.

During the quarter ended March 31, 2009 the Company took steps to improve its cryopreservation operations and reduce its fixed overhead by entering into a four year agreement with Progenitor Cell Therapy LLC (“PCT”) to outsource cryopreservation operations to PCT. Prior to commencing these services, PCT agrees to provide certain preliminary services consisting of technology transfer and protocol review and revision to ensure that the processing and storage services are cGMP compliant. The agreement sets forth agreed upon fees for the delivery of the services as well as providing for a one-time payment of $35,000 for the preliminary services associated with the transfer of the Company s cryopreservation process and standard operating practices to PCT s laboratory and incorporation into PCT s existing standard operating practices. An initial payment of $20,000 was paid upon commencement of services during the quarter ended March 31, 2009. The transfer of cryopreservation operations was completed in April 2009, the final $15,000 was paid and the Company s laboratory in Los Angeles was closed in June 2009. The Company does not anticipate any significant losses as a result of closing this laboratory. In addition, the Company believes the shifting of our cryopreservation activities from a fixed cost to a variable cost will allow the Company to utilize its cash in a more strategic fashion.

For the three months ended March 31, 2009, total revenues were $31,600 compared to approximately $23,500 for the three months ended March 31, 2008. The revenues generated in the three months ended June 30, 2009 were a combination of milestone income of $6,300 earned on signing a licensing agreement with Enhance BioMedical to develop a stem cell collection and treatment network, which is being recognized over the contractual period of technology transfer; $14,000 from stem cell collection fees and monthly stem cell storage fees, $8,700 from fees derived from adding a new physician to our collection center network and a prorata portion of fees billed our existing network physicians for annual fees associated with their collection center agreements and $2,600 in other revenue. The revenues generated in the three months ended June 30, 2008 were from stem cell collection fees and monthly stem cell storage fees in the period in the amount of $8,500 and the balance of $15,000 were fees derived from adding a new physician to our collection center network.

For the six months ended June 30, 2009, total revenues were approximately $76,700 compared to $24,200 for the six months ended June 30, 2008. The revenues generated in the six months ended June 30, 2009 were a combination of milestone income of $6,300 earned on signing a licensing agreement with Enhance BioMedical to develop a stem cell collection and treatment network, which is being recognized over the contractual period of technology transfer; $58,600 from stem cell collection fees and monthly stem cell storage fees; $9,200 of fees derived from adding a new physician to our collection center network and a prorata portion of fees billed our existing network physicians for annual fees associated with their collection center agreements and $2,600 in other revenue. The revenues generated in the six months ended June 30, 2008 were from stem cell collection fees and monthly stem cell storage fees in the period in the amount of $13,200 and the balance of $15,000 were fees derived from adding a new physician to our collection center network.

Selling, general, administrative and research expenses for the three months ended June 30, 2009 have increased by $2,335,800 or 98% over the three months ended June 30, 2008, from $2,379,400 to $4,715,200. During the last two years the Company has used a variety of equity instruments to pay for services in an effort to minimize its use of cash to incentivize staff, consultants and other service providers. In the quarter ended June 30, 2009 the use of equity instruments to pay for such expenses increased by $486,700 over the quarter ended June 30, 2008. These equity instruments were used to pay for staff compensation, director fees, marketing activities, investor relations and other activities.

Operating expenses funded by cash were $3,145,900 for the three months ended June 30, 2009 compared with $1,296,700 in cash funded expenses for the three months ended June 30, 2008, an increase of $1,849,100, which was the result of:

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